The Global Growth sector is one of the more diverse selections of investment funds. With currently  167 constituents and over £32 billion of funds under management, global growth funds cover a multitude of markets and investment styles.

The standard description of the sector says that it consists of ‘funds which invest at least 80 per cent of their assets in equities (but not more than 80 per cent in UK assets) and which have the prime objective of achieving growth of capital’. This gives a considerable degree of latitude to management houses in constructing the investment strategies for these funds, although the Investment Management Association (IMA) does introduce the caveat that funds that concentrate on particular sectors, even if it is
on a global basis, are put into the Specialist sector, rather than Global Growth.

A diverse sector
Nevertheless, while this means that the global financial sector or healthcare funds are regarded as ‘specialist’ (and technology funds have a grouping to themselves), the investment policies and management styles within the Global Growth sector vary more than any other.

They range from broadly based portfolios of global equities to funds that follow specific investment themes. There is also a large and growing number of what may broadly be described as ‘funds of funds’.

Indeed, what is striking about our roll of honour below is how many of the most consistent funds in this sector adopt some form of fund-of-funds approach. At one end of the scale, you have the original versions of this style of management, the funds of investment trust shares, many of which have been in existence for a considerable period of time.

These funds, which, as the name suggests, seek exposure to a range of global markets
via investing in closed-ended investment companies, were popular in the early days of the unit trust business, but have fallen out of favour in recent years. However, the performance of those remaining funds of investment trusts amply demonstrates the value of this approach.

Then we have the growing number of global funds of funds, which can generally invest in a broad range of open-ended onshore and offshore funds, as well as the shares of closed-ended investment companies. This seems to be becoming the preferred route for the managers of global portfolios, and the trend is likely to accelerate with fund managers increasingly using exchange-traded funds (ETFs), which can be included
in these portfolios, to manage their asset allocation.

Different themes
Another trend that has been gathering pace with this sector in recent times is the proliferation of themed funds. Although there are a number of well established funds in the sector that adopt a generalist investment brief, in a similar way to the Global Growth investment trusts, with a broadly diversified investment portfolio and a policy of generating both capital and income growth, an increasing number of funds are set up specifically to follow identifiable global investment themes.

These can range from ethical and ‘green’ funds to portfolios that concentrate on global small caps (there is no distinct global small companies sector). But there are also funds that follow broader ideas. So, for example, you have M&G’s Global Basics fund, which concentrates on companies involved in primary or secondary industries; it encompasses areas such as mining and oil but also consumer goods and the
defence sector. M&G also has a Global Leaders fund, which invests across all sectors, but in companies that the managers identify as leaders in their fields. Morgan Stanley Global Brands follows a similar philosophy.

Then you have even more innovative approaches, such as Investec Global Free Enterprise, which invests in ‘equities issued by companies around the globe that are expected to benefit from the process of privatisation, deregulation or demutualisation’ or AXA Talents, which ‘focuses on entrepreneurs who hold a large stake in their company and who are ready to assume significant investments to generate long-term growth for their company, as the value of their wealth depends on long-term value creation.’

The Global Growth sector is also home to a number of focus funds, which have highly concentrated portfolios, say 40 stocks or fewer. The idea behind this approach is that it means that the fund manager’s best ideas can come to the fore and each stock has a greater impact on the performance of the portfolio as a whole. However, this approach also increases the level of risk attached to these funds, as poor performers have the same impact as good ones.

Reacting to change
There is little doubt that the sector has generally been out of favour with investors recently, as the global economic slowdown has encouraged them to focus on funds with more specific mandates. This, indeed, may well be one of the reasons why many of the constituents of the Global Growth sector have adopted this more specialist investment approach.

Indeed, fund analysis service Financial Express reports that no fewer than 30 funds from the sector were either closed or merged with other funds in the six months to the end of April 2008. This again reflects the changing nature of the sector, as the more traditional ‘one size fits all’ approach to global equity investing is replaced by a variety of targeted funds focusing on specific investment ideas and objectives.

So it is not simply a case of deciding you want a global fund and then seeing who has the most consistent track record. Investors considering the sector will also have to take into account the particular investment approach of each individual fund, the degree of risk this entails and whether it is likely to bear fruit in increasingly turbulent market conditions.

As usual, we have restricted the list of funds profiled below to those available to retail investors, but we should give honourable mentions to a number of institutional and exempt funds that also achieved consistently high ratings in the performance-based categories – Gartmore Long Term Balanced, Lazard Managed Equity and three funds managed by Mellon Newton, Newton 60/40 Global Equity, Newton Falcon, and Newton Overseas Equity Exempt.

Halifax Fund of Investment Trusts
A long-established trust, set up in 1984, Halifax Fund of Investment Trusts aims at generating capital growth from a portfolio of investment trust shares. The idea is that by investing via investment trusts, this will help to diversify investment risk. Managed by David Marchant, the fund focuses both on markets it believes are likely to outperform and investment trust managers who can outperform their peer group. Just under £490 million in size, the fund currently has a high UK exposure at just under 54 per cent, and several of its major holdings have exposure to private equity, alongside a selection of established global growth trusts.

Jupiter Merlin Worldwide Portfolio
A well-established fund of funds portfolio, managed by the team at Jupiter Unit Trust Managers headed by John Chatfield-Roberts, Jupiter Merlin Worldwide Portfolio is £317 million in size and is ‘unfettered’, meaning its managers can select funds from other management houses. It has a simple brief to achieve capital growth from a portfolio of investment funds. This means that the fund is actively managed and currently has a heavy concentration (44 per cent) in specialist and emerging market funds. It will follow themes as they emerge, but there is also a broad spread of global markets within the overall portfolio, emphasising the importance of maintaining a balance of sectors and markets.

JPM Multi-Manager Growth
Another of the funds of funds operating in this sector, JPM Multi-Manager Growth is run by the multi-manager team at JPMorgan Asset Management. Just over £443 million in size, the fund invests predominantly, although not exclusively, via investment trust shares, but is not limited to funds managed by JPM. The approach is to achieve a broad global spread across markets and sectors through a diverse portfolio of funds. Its current major holdings maintain a balance between established generalist trusts, such as Scottish Mortgage, Monks, and British Empire Securities, and more specialist portfolios, including Templeton Emerging Markets and BlackRock World Mining Trust.

Margetts International Strategy
This fund is managed by the fund management subsidiary of a Birmingham-based private stockbroking and wealth management firm, which has been offering portfolio management services since 1981. Margetts takes a fund-of-funds approach, on the grounds that this is the best way to run a professionally managed portfolio with a coherent investment strategy. Launched in 1992, Margetts International Strategy is a concentrated fund-of-funds portfolio, currently with 15 holdings. The emphasis is generally on equity-based funds, although just over 12 per cent of the portfolio is currently invested in a money market instrument, reflecting a cautious approach and the building up of the fund’s cash position prior to the credit crunch.

City Financial Multi-Manager Growth
The management of City Financial Multi-Manager Growth, one of the smaller selected funds at £70 million, is subcontracted to John Husselbee at North Investment Management, a specialist fund-of-funds boutique. Husselbee is one of the pioneers of fund-of-funds investing, having run teams at Rothschild Asset Management and Henderson Global Investors before establishing his own firm.

The fund holds a mix of open-ended and closed-ended funds, with the largest current weighting, 26 per cent, in a range of asset-backed and absolute return funds, to complement the more traditional geographically sector-focused funds in the remainder of the portfolio.

T Bailey Growth
Another regionally based specialist fund-of-funds manager, T Bailey Fund Managers are headquartered in Nottingham. The firm grew out of a family investment office that has been managing assets for 150 years.  Managed by Richard Martin and Jason Britton, T Bailey Growth was the firm’s first fund, launched in 1999. Now £178 million in size, the fund has a capital growth objective and concentrates on open-ended, mainly UK-authorised funds, although it will invest in offshore-based funds if required.

Although it has a global mandate, the fund tends to have a higher than average UK exposure of around 40 per cent, which is reflected in its benchmark.

M&G Global Basics
The only one of our featured funds to invest directly in equities, M&G Global Basics
is managed by Graham French at M&G, the investment management subsidiary of Prudential. French has run the portfolio since 1995, although the fund itself is one of the oldest in the UK market, having been launched in 1973. It is also one of the largest at £3 billion and follows a thematic approach to investing, concentrating on companies involved in primary or secondary industries. This still gives the manager considerable scope, with the portfolio spread across a range of companies in extractive industries, basic materials, consumer goods, industrials, healthcare and oil and gas.